Certainly a lot of the current concern about antitrust comes from a broad sense that corporations are too economically and politically powerful, that our economy has been restructured in ways that make ordinary people worse off, and that massive tech companies are able to use our data in ways that we have little control over. That’s political antitrust. And those are totally real issues.

But I want to explore some new questions being raised that are not exactly within the current scope of economic antitrust, but that are still kind of speaking its language—that are pushing to change the antitrust technocracy, not up-end it. To recap, as it has been construed for the last thirty-plus years, the purpose of antitrust is to promote consumer welfare, generally by trying to keep firms from being able to raise and keep prices above a competitive level. The focus is consumers, and prices.

Increasingly, though, people at least adjacent to the space of antitrust expertise are making claims about economic problems they think are being caused by lax antitrust enforcement, or that antitrust should be addressing. And those proposals are worth keeping an eye on, because as hard as it might be to change the expert consensus, it’s still more likely than a new anti-monopoly movement. (Though the two could certainly reinforce each other.) I see these new arguments as falling into basically three categories.

Market power has effects we didn’t realize

Market power is the ability to keep prices above a competitive level (i.e. above marginal cost). Once upon a time, people thought there was a fairly close relationship between how concentrated a market is—that is, how many companies control what share of the market—and how much market power firms have. Since the 1970s, there has been much less of a presumption that concentration, on its own, indicates market power. That means that there’s been less concern about whether we’ve got four airlines controlling 70% of the U.S. market, or that four carriers control 99% of the U.S. wireless market.

Increasingly, though, people are raising flags about other problems that might result from market power. One of these is labor monopsony—the idea that firms have market power, but as purchasers of labor, not sellers of products, and that this is driving wages down. The Council of Economic Advisers put out a report last fall suggesting this might be happening, and Democrats’ mention of “bargaining power for workers” implies this is part of what they’re trying to address. There are related arguments about market power in supply chains and the emergence of “winner take most” industries that also suggest links between concentration or market power and wages.

In theory, monopsony can be handled within the current legal framework, though it is rarely addressed in practice. So developing arguments about the effects of market power on workers, and a legal framework for addressing that within antitrust, is one conceivable new direction for antitrust.

Others are arguing that market power can lead firms to attach undesirable conditions to products that make them lower quality, even as price remains the same. In particular, some scholars, including Nobel Laureate Joe Stiglitz, have framed privacy as an antitrust issue: the product may be free, but consumers have no choice about how their data is used (and in the case of platforms like Facebook, no equivalent competitors). Privacy is hard to address within a framework focused purely on price. But in Europe, competition policy is increasingly tackling privacy issues, and Germany is currently investigating whether Facebook’s dominant position is forcing consumers to give up their privacy without having an alternative choice.

Market power has causes we didn’t realize

The Atlantic just featured a story with the dramatic title, “Are Index Funds Evil?” The article discusses the rise of large institutional investors—index funds, though not only index funds—and what it means that, increasingly, big chunks of competitors in a specific market are actually owned by the same few corporations. It goes on to discuss work by José Azar, Martin Schmalz, and Isabel Tecu that finds that this common ownership enhances market power, and that airline ticket prices are 3-7% higher than they would be under separate ownership.

In this story, index funds were the hook, but it just as easily could have been framed around antitrust. In a way, common ownership was the original antitrust question: the big trusts of the late 19th century were not single-firm monopolies, but competitors that had turned over ownership to a group of trustees that made unified governance decisions. And while research in this area is still new and findings tentative, legal scholars are already making the case that antitrust law can cover the anticompetitive effects of these horizontal shareholdings. If this work continues to hold up, this seems potentially transformative.

Technological change is creating new threats to competition

Finally, a fair bit of the recent chatter is basically arguing, “it’s the technology, stupid.” The dynamics of competition change as more of the economy shifts to online platforms. Because of network effects, companies like Facebook, Google, Apple, and Amazon are hard to compete with—much of their value comes from their existing user base. And because they aren’t just selling products to consumers, but connecting consumers with producers, they aren’t acquiring market power in the traditional sense. Facebook and Google are free products, after all.

But the power of network effects means that they have a tendency towards monopoly. And the fact that the four largest companies by market capitalization are platforms suggests how central platforms have become to our economy.

So we have these new companies that have become very large, and that appear monopolistic, though they also create great value for consumers. From an antitrust perspective, they don’t really appear to be a problem, because they aren’t raising prices. And the history of rapid technological change over the past 25 years, including the rise and fall of a number of once-dominant platforms, raises the question of whether even platforms behaving in anticompetitive ways pose much of a long-term threat.

Recent scholarship, though, argues that monopolistic platforms are in fact anticompetitive, that it is a problem, and that current law is poorly equipped to handle. Lina Khan’s much-circulated note in the Yale Law Journal, for example, argues that 1) platforms encourage predatory pricing—generally seen as irrational (and thus not an issue) within antitrust law—because network effects encourage pursuit of growth over profit, and 2) platforms collect data on rivals that give them an unfair competitive advantage. These sorts of issues clearly fit within the broad scope of “protecting competition,” but don’t fit easily with a consumer welfare, market power conception of antitrust.

Changing that would be a significant project, but if we have an economy that is dominated by firms whose potentially anticompetitive activity is essentially beyond the scope of antitrust, there’s not much left to antitrust. And again, the massive fine the E.U. just levied on Google—for favoring its own shopping service, consisting of companies that pay Google to be on it, over competitors in search results—suggests what this could look like. So far, the U.S. has not demonstrated much enthusiasm about expanding antitrust in this direction. But it’s not inconceivable that it could happen, and it could be done within a framework that was focused solely on competition, if not only on consumer welfare.

Again, all these challenges to the current antitrust framework are at least in the ballpark of its conversation, even if they would require pushing the law in new directions or advancing the acceptance of new economic theories. And they are not the only arguments that are in play here. For example, the question of whether inequality is facilitated by concentration or market power, or whether it has become such a central economic problem that antitrust should try to address it, have prompted enough discussion that two leading antitrust scholars have felt the need to argue that antitrust should leave inequalityalone.

Unlike political antitrust, which would probably require a social movement to move it forward, these antitrust arguments have the potential to gain traction without necessarily requiring legislation or a revolution against the current antitrust regime. The 1970s shift toward Chicago-style antitrust happened, to a considerable extent, because the old economic framework seemed increasingly inadequate for explaining the world people found themselves in. As the current framework comes to seem similarly dated, this could be another moment when such change is possible.

3 Responses

Many economists believe that market power has increased to a worrying extent, that horizontal shareholding is part of it, and that regulators may want to be more strict on merger approval. Where we disagree are the parts of the “new antitrust” that hold that big firms are necessarily bad in their market effects (for workers or for consumers). We also generally disagree that the political effects of big firms are best handled by antitrust; this is similar to the argument that, say, housing price issues should be handled by monetary policy. It’s true that monetary policy can affect housing, but it’s a very indirect way to do so, with lots of negative side effects compared to a more direct intervention. Finally, the empirical – not just the theoretical – case behind the “new antitrust” like Lina’s Amazon claims is incredibly weak; former FTC commissioner lays out the problems in a series of tweets here (https://twitter.com/profwrightgmu/status/889603600804179972?lang=en), though of course there are more detailed cases against in the law & econ lit.

Thanks for the comment. I tried to separate some of the economic/political stuff here: https://orgtheory.wordpress.com/2017/08/03/the-democratic-antitrust-platform-is-pretty-radical/. Some of what I find interesting about how this conversation is evolving is that some of these arguments are coming from people (Furman, Stiglitz, Zingales) who have to be taken seriously, even if IO people largely disagree (on a variety of grounds). As someone outside the field, I can’t fully evaluate the empirical evidence, but there’s this mix of political activism and arguments from Serious People that feels like it could cause a shift in the consensus. I guess we’ll see how that plays out.

Yup – appreciate the great historical content in the previous posts. I would hesitate to loop in the kind of idea people like Zingales are promoting, and the specific idea that “a major goal of antitrust should be making big firms smaller, even when we can’t show a reduction in economic surplus”. The latter is the “new antitrust” or “#hipsterantitrust” or whatever term you prefer. The former is something that many economists, left and right-wing, support (actually, I don’t know that I would even call Zingales left-wing!).